President Saddam Hussein of Iraq said tonight that he would free foreigners being held hostage in Iraq and Kuwait in exchange for a complete military and political pullout by the United States from the Persian Gulf region.

The Iraqi proposal came as diplomats said that some Western citizens were being moved to potential military targets to serve as human shields.

Leaving no doubt that the foreigners would be shields against bombing, Mr. Hussein said ''their presence, along with Iraqi families, at vital targets may prevent military aggression.''

Demands a Written U.S. Pledge

The trapped foreigners, more than 10,000, including about 3,000 Americans, could leave, Mr. Hussein said in a message broadcast over Baghdad television, if President Bush gave an unequivocal, written pledge to pull military forces out of the gulf, lifted the economic blockade imposed after the takeover of Kuwait and promised not to attack.

The Iraqi leader said that Mr. Bush's promise should be backed by a United Nations Security Council guarantee that the American forces would withdraw from Saudi Arabia and the gulf on a fixed timetable, as fast as they had been deployed.

''Averting death and starvation resulting from American policy against Iraq, by preventing some citizens from traveling, is a gain for humanity as a whole,'' Mr. Hussein said in an effort to justify his refusal to let the foreigners leave. Discounted by U.S. He offered no response to international calls for the withdrawal of Iraqi troops from Kuwait, terming it an ''Arab issue.''

Aboard the plane carrying Mr. Bush from his vacation home in Maine to Washington, the President's spokesman, Marlin Fitzwater, dismissed the Hussein statement.

''This one doesn't have much relationship to our objective,'' Mr. Fitzwater said. ''It contains no new relevant proposals and makes no reference to the United Nations and Arab League calls for them to leave Kuwait.''

In Middle East waters, American warships continued to shadow two Iraqi oil tankers while the Administration tried to gain United Nations approval for military action to enforce the international embargo.

On Saturday night, the United Nations Security Council demanded that Iraq free all detained foreigners and gave an implicit warning of military action if they were not freed.

The White House had also been terse on Saturday in response to the Iraqi threat to use hostages as human shields and limit their food. The Iraqi statements were said to be ''totally unacceptable.''

Both today and on Saturday, Mr. Bush declined to respond personally to Mr. Hussein.

In a ''goodwill gesture'' announced moments after the Iraqi leader's statement, Baghdad said that some Westerners from five countries that had not sent troops to join the forces in the gulf - Austria, Finland, Portugal, Sweden and Switzerland - would be allowed to leave.

It was not immediately clear how many of the estimated 570 citizens of the five countries would be freed.

President Hussein made no mention of withdrawing Iraqi troops occupying Kuwait, as has been demanded by Mr. Bush and the United Nations Security Council.

''Arabs would treat this as an Arab issue,'' Mr. Hussein said.

This was not an offer to pull out, particularly since he cited territory disputed in the Western Sahara between Morocco and Polisario guerrillas, and Syria's occupation of much of Lebanon, ''and other issues.'' #9,000 Ordered to Hotels What the Iraqi President described as a call for ''an in-depth dialogue'' came on a day that began with the Iraqi authorities in Kuwait ordering the 9,000 or so Western nationals there to report to three luxury hotels.

''Anyone who does not comply with this call,'' the announcement said, ''they and their governments bear full responsibility for any evil consequences resulting from acts against them by hostile powers.''

Iraqi officials, in a series of announcements on Saturday, said the Western, Japanese and Australian nationals forbidden to leave Iraq and Kuwait - estimated to total nearly 13,000 - would be interned at strategic military and industrial targets in the hope of warding off bombing attacks.

CBS News reported from Baghdad tonight that 35 Americans had taken refuge in American diplomatic quarters there after ''it became obvious that Iraqi authorities intended to round them up and send them out as hostages and human shields at possible U.S. bombing sites.''

The television report quoted an an American Embassy official as saying: ''We're not going to allow our people to be simply herded up like sheep and made to go places against their will without trying to help.''

Referring to the report, the State Department said, ''We can't confirm it and, therefore, we are not commenting.''

The British Foreign office said that it had been informed by the Iraqi authorities that people who reported to the hotels in Kuwait would be ''transferred to key installations.''

''Those who do not report to the hotels will be rounded up and taken direct to the sites,'' the Foreign Office said the Iraqi officials had told them. This information was in a bulletin read over the BBC's hourly foreign news shortwave broadcasts.

The Foreign Office said that about 40 Britons had been moved out of their hotels in Kuwait to ''unknown destinations.''

British officials added they had reports that British citizens were being held at checkpoints in Kuwait City and that some foreigners had already been moved to strategic sites.

''In addition to British citizens, French, West Germans and Americans have been affected,'' the Foreign Office said.

The French Foreign Ministry protested to Iraq during the day that 26 French citizens had been taken from hotels in Baghdad and that one had been seized in Kuwait. French Navy ships in the gulf were given orders today to use force to carry out the United Nations economic embargo against Iraq.

'Keep a Low Profile'

The British Foreign Office told its nationals in Kuwait to stay indoors and ''keep a low profile.''

''We advise any whom the Iraqi authorities attempt to detain or move forcibly not to offer any resistance,'' the Foreign Office added.

In Washington, a State Department spokesman said: ''We've told the Iraqis in the past that we would not order our citizens to comply with such an order. We wouldn't order them around and we don't want the Iraqis to order them around either.

The Iraqi leader warned in his televised message, billed as an address to the families of the trapped foreigners, that ''many of our children and your children will be orphaned if war breaks out and many of our women and your women will become widows. Many of our men and your men will die.''

The later announcement of the ''good-will'' release of the limited number of foreigners, made by the Speaker of Parliament, Saadi Mahdi Saleh, appeared to suggest an effort to weaken the international economic embargo being imposed on Iraq and swap hostages for goods.

More foreigners might be released, Mr. Saleh said, if their countries did not impose ''sanctions on the import of food, medicine and other goods to Iraq.''

The vast majority of foreign workers in Kuwait and Iraq are Arabs - more than a million Egyptians alone - and other third-world nationals, particularly from the Indian subcontinent and the Philippines.

There has been no real attempt to hold these workers - indeed one announcement specifically exempted ''Egyptian brothers'' - and they have been streaming across the Saudi and Jordanian borders, about 100,000 so far, as tired, frightened, sweaty refugees.

More than 13,000 jammed the Jordanian border crossing today. Most had worked at menial jobs, struggling to build a stake for the future and now had lost everything.

The order in Kuwait this morning to report to the Hyatt Regency, Le Meridien and International Hotels specified ''Western foreigners and Australians.'' The largest groups in Kuwait, according to the latest estimates, were roughly 4,000 from Britain, 2,500 Americans, 552 Canadians, followed by substantial numbers of West Germans, French, Italians, Greeks, Swedes, Spaniards and a smattering of nearly all European nations.

Japanese citizens, who reportedly number about 278 in Kuwait and 230 in Iraq have been told they cannot leave.

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A version of this article appears in print on August 20, 1990, on Page A00001 of the National edition with the headline: CONFRONTATION IN THE GULF; FOREIGNERS TRAPPED TILL U.S. LEAVES REGION, IRAQI WARNS; SAYS KUWAIT IS 'ARAB ISSUE'. Order Reprints|Today's Paper|Subscribe